US Dollar Index Firms as Investors Remain Cautious Despite FSOC Statement on Sound US Banking System

Key Takeaways

• Dollar remains firm, yen near seven-week high
• Investors cautious despite FSOC statement on US banking system
• Representatives demand more information from Yellen on banking sector meeting
• Three Federal Reserve Bank presidents indicate interest rate hike possible

Overview

On Monday, the dollar continued to remain firm against a basket of major currencies while the yen hovered close to a seven-week high as investors analyzed recent actions by regulators and authorities aimed at easing concerns over the global banking system.

At 02:12 GMT, the June U.S. Dollar Index is trading at 102.790, up $0.026 or +0.03%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.02, up $0.16 or +0.57%.

Investors Remain Cautious Despite FSOC Statement on US Banking System

Despite the US Financial Stability Oversight Council’s (FSOC) statement last Friday that the US banking system is “sound and resilient,” investors remain cautious as global banking stocks have been hit hard this month after the collapse of two US lenders and the rescue of struggling Swiss bank Credit Suisse last week.

Led by Treasury Secretary Janet Yellen, the multi-regulator FSOC met last week to discuss the current state of the banking sector and noted that while some institutions have been under pressure, the US banking system remains strong and resilient.

However, on Friday, Representatives Bill Huizenga and Andy Barr demanded that Yellen provide them with additional information about the March 12th meeting, including unredacted minutes, votes, timing details, and bank stress test results.

Meanwhile, global banking contagion fears caused European bank stocks to fall sharply again on Friday, with Deutsche Bank and UBS affected by concerns that regulators and central banks have not yet contained the worst shock to the sector since the 2008 global financial crisis.

Three Federal Reserve Bank Presidents Indicate No Worsening Financial Stress, Allowing Interest Rate Hike

On Wall Street, shares recovered from an earlier sell-off as three Federal Reserve Bank presidents said in separate remarks that there was no indication that financial stress was worsening this week, allowing them to raise interest rates by a quarter percentage point.

Yellen attempted to calm fears of further bank deposit runs on Thursday, stating that she was ready to repeat the actions taken in the Silicon Valley and Signature Bank failures to protect uninsured bank deposits if more failures threatened more deposit runs.

These actions to invoke “systemic risk exceptions” were taken by Yellen, President Joe Biden, the FDIC, and the Fed, which supervised Silicon Valley and Signature.

Daily June US Dollar Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside on Friday with the confirmation of the previous session’s closing price reversal bottom.

A trade through 101.555 will signal a resumption of the downtrend. A move through 105.490 will change the main trend to up.

The minor trend is also down. A trade through 104.720 will change the minor trend to up and confirm the shift in momentum.

The main range is 100.345 to 105.490. The June U.S. Dollar Index futures contract is currently trading inside its retracement zone at 102.918 to 102.310.

The long-term retracement zone target is 103.631 to 104.406.

Daily June U.S. Dollar Technical Forecast

Trader reaction to 102.918 is likely to determine the direction of the June U.S. Dollar Index on Monday.

Bullish Scenario

A sustained move over 102.918 will indicate the presence of buyers. If this move generates enough upside momentum then look for a surge into the long-term 50% level at 103.631. Watch for sellers to return on a test of this level.

Bearish Scenario

A sustained move under 102.918 will signal the presence of sellers. This could drive the index into the main Fibonacci level at 102.310.

Buyers could come in on a test of this level, but if it fails then look for the selling to possibly extend into 101.555.